Committee on Ways and Means, Oversight Subcommittee, 107-32, Taxpayer Advocate Report and Low-Income Taxpayer Clinics

TAXPAYER ADVOCATE REPORT AND LOW-INCOME TAXPAYER CLINICS

HEARING

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT

OF THE

COMMITTEE ON WAYS AND MEANS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

JULY 12, 2001

SERIAL 107-32

Printed for the use of the Committee on Ways and Means

Chairman HOUGHTON. Ladies and gentlemen, this is rather abrupt, but I think we would like to start the hearing on the Report of the Taxpayer Advocate of the Oversight Committee.

So would you all come up here. And, frankly, if it is all right with you, Mr. Coyne, maybe we could all come up in terms of the panel -- Ms. Olson but also Professor Book and Professor Spragens, Professor Rich and Professor Cohen and Mr. Heavner and Mr. Gold. I don't know if you can all sit at that table, but if you can, it would be great.

Again, I apologize very much. It was all Mr. Coyne's fault. And we are going to start this thing and end it promptly.

What I would appreciate you doing, if you could, is if there is anybody who has to leave early -- I know Mr. Coyne has to leave -- that we will just put you right on after Ms. Olson.

So if that is okay, then why don't we just start. I have just got a couple of comments to make.

I am delighted you all are here. I thank you for your patience. These are important hearings. Particularly we are going to review the report of the Taxpayer Advocate, who is doing an absolutely outstanding job, Nina Olson. You all know her. You know her reputation. She has done a great job.

Then, following Ms. Olson, we are going to have representatives of low-income taxpayer clinics.

You probably know, if not, let me say that in 1998 Congress recognized the need to provide assistance to taxpayers who are not able to afford proper assistance when faced with significant Internal Revenue Service (IRS) problems. So why don't we go into our testimony; and, Ms. Olson, if you could begin we sure would appreciate -- oh, wait a minute, wait a minute. I am sorry. Mr. Coyne has got a statement.

Mr. COYNE. Mr. Chairman, I just would like to submit a statement for the record so we can move along with the hearing.

Chairman HOUGHTON. Would anybody else like to -- would you like to say something?

Okay. Good. So what I would like to do is if I could call on Ms. Olson first, and then I will go right to Alan Cohen. All right. Thank you very much.

STATEMENT OF NINA E. OLSON, NATIONAL TAXPAYER ADVOCATE, INTERNAL REVENUE SERVICE

Ms. OLSON. Mr. Chairman and members of the Committee, thank you for inviting me here today to discuss the Taxpayer Advocate Service's (TAS) plans for fiscal year 2002.

First, I would like to thank you for your support and guidance that the Subcommittee has given me personally and the Taxpayer Advocate Service collectively. Your interest encourages us to meet our goals as defined by the Restructuring Act.

What is the Taxpayer Advocate Service's mission? section 7803 sets out four objectives. Only one of those objectives addresses direct casework. The other three involve advocacy about systemic problems.

TAS, as we call the Taxpayer Advocate Service, is first charged with helping taxpayers resolve their problems with the IRS. I find it very interesting that Congress does not direct TAS to actually do the problem solving. That is the difference from the former problem resolution program, where problem resolution officers actually made decisions on cases, pursuant to the district director's authority.

With the independent reporting structure of TAS under the National Taxpayer Advocate, TAS employees derive their authority from the statute and from the National Taxpayer Advocate.

What powers- or authorities-do the Taxpayer Advocate Service employees have to accomplish its mission?

First, we have the ability to issue Taxpayer Assistance Orders. Under 7811 we can order the IRS to cease an action or to take an action. As best as I can determine, these actions are limited to procedural provisions. That is, a TAS employee can stop a levy if it will create a significant hardship, but he or she cannot order a revenue officer to accept a particular offer in compromise or require a revenue agent to reach a specific result in an audit. We can only ask them to review the case and consider our recommendations.

In addition to our statutory authority, the Commissioner has determined that it makes good sense for TAS employees to actually resolve simple repetitive or routine cases. I believe that this combination of statutory and what we call delegated authorities enables TAS to help taxpayers resolve their tax problems without turning the Taxpayer Advocate Service into a shadow IRS.

I must stop here, however, to acknowledge that there is a missing link in the tax system. There are cases where the IRS cannot correct its errors or mistakes because the laws prevent us from doing so. This happens in all legal systems; and where the remedy at law fails or is insufficient, equity steps in. Such a remedy would be unique in a tax administration system. I believe, however, that Congress should vest the Commissioner with that authority to render equitable relief in instances of hardship where the IRS has committed a wrong that shocks the conscience of all taxpayers if it went uncorrected. It may also be appropriate to authorize the National Taxpayer Advocate to recommend such relief to the Commissioner and to investigate the proposed possible hardship. We are working on this proposal and hope to include it in our December report to you all.

The pressures on TAS to assume more and more responsibility for actually deciding taxpayer cases is illustrated by our recent inventory study. This study demonstrates that for fiscal year 2000 and year to date 2001 over 80 percent of the cases that came to TAS during that period arrived because of the Service's failure to timely act or because of some other systemic failure. It is stunning to me that so much of our inventory consists of essentially overflow from the Service's operating divisions.

There are many reasons for this predicament. First and foremost is the issue of resources. Our study indicates that when IRS examination or collection employees are pulled away from their regular duties, as they have been in the last few filing seasons when they fill in on phones or walk-in sites, cases back up in operating divisions and ultimately end up in TAS. With the stable initiative, we expect the situation to improve.

A second reason for the overflow is an historical lack of attention to planning around normal business cycles. It is my opinion that in the past planning for examination and collection initiatives occurred in somewhat of a vacuum. For example, the Service might plan to send out deficiency notices on December 29th. This notice gives the taxpayer 90 days to file in Tax Court to protest a proposed assessment. The taxpayer can call the IRS during the 90-day period to attempt to resolve the case. But the 90-day period occurs during filing season when our phone traffic is greatest. So the taxpayer is unable to reach the IRS, doesn't file in Tax Court because they are scared and ultimately ends up in TAS after the 90 days. This situation could be avoided with more careful IRS planning.

I am pleased to report that TAS has gotten the attention of the IRS on this issue. TAS representatives are now regularly included in task forces, compliance initiatives and employee meetings. For example, we are active participants in the recent offer in compromise designed task force and are participating in the exam reengineering design team.

The TAS inventory study enables us to present the operating and functional divisions with concrete information that they can incorporate in their planning processes.

Recently, we provided Wage and Investment with inventory figures on a particular area called uncontrolled correspondence. Taxpayer correspondence is controlled when we receive it at the IRS and enter it on our document retrieval system. When an item is entered on that system taxpayers can call the IRS and we can tell where it is and check on the processing of that document, where it is in the IRS. If correspondence is uncontrolled, we can only tell that it has been received and we can't answer any taxpayer questions. These cases fall out to TAS.

As a result of us showing the Wage and Investment Division what was happening with TAS receipts in response to their uncontrolled correspondence, Wage and Investment improved their controlled correspondence by 15 percent through the first 6 months of the fiscal year. We were then able to see a 10 percent decline in TAS uncontrolled correspondence cases. This direct correlation came from our working off of our inventory study.

We are currently providing monthly inventory updates to the operating divisions and will continue to use that data to encourage them to handle their cases better and prevent them from coming to TAS.

I believe that the Taxpayer Advocate Service needs to better articulate the nature of its advocacy. We are often the first people in the IRS to hear the taxpayer out in full. We can help the taxpayer work through the maze of IRS procedures and functions; we can assess the merits of the case and make a recommendation about the disposition of the case. If we feel the IRS is not responding appropriately to the taxpayer situation, we can keep advocating, raising the issue up through the Service to highest levels; and, most importantly, if we and the rest of the Service are unable to offer the taxpayer relief because of an administrative or legislative impediment, we can advocate to the IRS or to you in Congress for administrative or legislative change.

These tasks require discipline, vision and dedication. I believe that the employees of the Taxpayer Advocate Service possess all three qualities.

Ms. Olson, in your earlier role as the head of the first independent low-income tax clinic, what were the major reasons at that point that taxpayers sought clinic advice?

Ms. OLSON. Earned income credit cases, and many of the earned income credit cases were in the collection arena. The taxpayers had not been able to represent themselves well in the examination audit side, and the decision just stood that they weren't entitled to it, and so we were dealing with collection issues at the same time as trying to prove that they were entitled to the earned income credit.

We also saw things like independent contractor employee classification people being treated as an independent contractor and not paying Social Security tax on their wages and owing tax because of that, but, again, we were in the collection mode there as well.

Mr. COYNE. As we move ahead in simplification of the Tax Code, do you have any recommendations today that the Committee ought to take into consideration?

Ms. OLSON. I do believe that the Joint Committee's complexity report and -- simplification and complexity report -- the uniform definition of a qualified child for the earned income credit, head of household, dependency exemption will go a long way toward simplifying the law for a large number of taxpayers. It will also simplify the administration of that provision, the earned income credit. Because by coming up with a uniform definition it will be easier for the IRS to test whether somebody meets that test. It is less complex, we're going to make less intrusive inquiries, and we can use third-party information to do it. So, in many instances, we wouldn't even have to contact the taxpayer before we could conclude, yes, they are entitled to it. So that would both administratively and for taxpayers reduce burden enormously.

Mr. COYNE. Well, thank you for your service as National Taxpayer Advocate; and thank you, Mr. Chairman.

Ms. Olson, we appreciate your testimony today and, more importantly, the work you are doing as a Taxpayer Advocate. You jumped into this with a lot of great experience, including with some of your colleagues who are on the panel with you this afternoon, and a lot of energy and enthusiasm, and this report reflects that.

You have set out in this report some fairly ambitious objectives for the next fiscal year. You have also indicated some of these objectives may not be achieved in the next fiscal year and some of the questions may not be answered.

I guess I have two questions for you. One would be, do you feel as though the current focus on individual cases -- the caseload is growing, and it is -- one of the objectives you are going to do is to look into whether that is appropriate and how that might be changed over time, but do you feel as though you have adequate time to address some of the root causes of some of the complexity and some of the problem areas per Mr. Coyne's question, or do you feel as though you are just so overwhelmed with individual cases and managing that that you do not have time to back up and take a look at some of the root causes?

Ms. OLSON. I think that actually we have a very good balance right now in terms of being able to look at the larger issues and to give you information that you need and can use. The cases that I am concerned about us getting are what I call the overflow cases, the ones that should have been resolved at the first point of contact, the operating divisions; and what is heartening to me is that I have been very vocal within the IRS about this happening.

Again, our inventory studies showing that 80 percent of our cases are made up of that, that is to me an unacceptable ratio and that we are going straight back to the operating divisions to find out why this is happening and how that can be changed. I feel that if we get that under control then the cases that we really are getting into, the Taxpayer Advocate Service, will be ones that are indicating either legislative or administrative problems, not just overflow problems, but things that need to be fixed in one of those two arenas and will point out things that then we should be working on on a policy or recommendation side. I am concerned that we are not getting as much information as we could because we are dealing with these overflow cases.

Mr. PORTMAN. So many of those cases are simply first impression cases, they haven't exhausted the normal procedures and therefore may or may not reflect some more serious problems with the system or laws as they stand or practices, procedures.

Mr. PORTMAN. The other question I have is really one of a judgment call on your part. I again am impressed with the goals that you are undertaking over the next fiscal year and, as you say in this report, beyond, but I am also concerned that you may be taking on too much.

As the IRS goes through a very difficult time of compliance with some of the legislation passed in the IRS Restructuring and Reform Act of 1998 (RRA) and some of the internal changes that actually began before RRA was enacted, including restructuring, including new performance measurements, including the modernization efforts, there are -- and including figuring out how to deal with some of the new RRA restrictions on individual employees, it is a concern of mine that the Taxpayer Advocate continue to do its job in a steady and focused basis and not add to, frankly, some of the dislocation and confusion that is going on with the restructuring and reorienting of the IRS. Yet your questions that you anticipate looking at in the next fiscal year are very fundamental questions.

For instance, what is the role -- what is the extent to which you should be resolving problems rather than kick them back into the normal system? What should the appropriate composition be of your inventory according to hardship criteria? What standard should you be held to? What is the appropriate measure of success, which is a difficult question again the larger entity is working through.

My only question to you is, is this the appropriate time for you to take on some more of these fundamental issues when through RRA we just went through this process in a sense looking at what happened in 1996, coming back in 1998, reviewing it, establishing more independence, establishing, frankly, some better pay so that we could attract and keep good people in the Taxpayer Advocate system. Is this the right time to be going back and looking at some of these fundamental problems when the caseload is high and the system itself is under quite a bit of stress?

Ms. OLSON. My employees -- those questions came in large instances because my employees were asking them of me. The question about when can we say no to cases is very hot in their minds, and I felt that we needed to begin a discussion about it.

Mr. PORTMAN. Saying no to cases as they come from the Service or saying no because they think the taxpayer may not have a valid case?

Ms. OLSON. Saying that this is not yet a Taxpayer Advocate Service case. They were asking me that question, and I thought we needed to begin that dialogue, not reach an answer necessarily because I think it is a very difficult question, but to ignore it would be putting them in a state of limbo.

Mr. PORTMAN. The simple answer would be in the overflow cases that it is not, because it would be again a case of first impression without going through the normal process.

Ms. OLSON. Right, and yet where is the rest of the IRS at the time? Can we send them back if there is nobody there to take them because they are dealing with something else? That is a difficult thing. The same kinds of questions. What does it mean to be an advocate?

To some extent, that was in response to many people that I heard from the practitioner community saying to me we had a case, the Taxpayer Advocate helped us take it to exam, and exam said the same answer that they have given us all along. And the Taxpayer Advocate said, well, this is what exam said; and they didn't push back, they didn't say, well, think about this again.

So we thought that there should be a beginning of a dialogue about what is advocacy within the IRS, how is it different from being an advocate outside of the IRS. And my employees, when I started talking about that in town hall meetings, were very excited about that. I think it is helping them define for themselves what their role really should be, and I am looking at this as a discussion with them, and so far they have stepped up to the plate. It is not a burden for them.

Mr. PORTMAN. Without necessarily sort of turning the Taxpayer Advocate system upside down, as we have done with the IRS, for good reason, but without distracting folks from their primary mission.

Mr. POMEROY. Well, considering the hour and other witnesses, Mr. Chairman, I will be very brief.

The public perception of a tax collection system that operates with integrity and responsiveness is incredibly important. Often Congress I think, even while it is legitimately concerned about inequities in the Tax Code or operations of tax collection, end up scoring the cheap political hit of demonizing the IRS and in the end just bringing discredit upon this essential function of government. That really serves no constructive purpose, spreads broad constructive cynicism, and increases noncompliance.

Basically this Taxpayer Advocate function is a very important and appropriate way in which we try to listen very carefully to the taxpayers, respond to them, make systems changes that the input brings us to. So as the person in charge of all that I really do commend you.

I would say that your work is not complete in that 12 States do not have clinics, and one of them is mine, and I would like to work with you on that. Certainly, the 102 tax clinics in the 38 States where you have reached already, pretty darn impressive, and let's get a 50-State representation, with North Dakota being the 39th.

Chairman HOUGHTON. Okay. Fine. I am not going to ask any questions because I will be able to talk to you personally here, but I want to thank you very much. If you want to stay, fine. You don't have to. What we will do is go right on to the other members of the panel.

I have got three people who evidently have to get out of here fast -- Alan Cohen, Dixon Rich. Is that right, Mr. Rich?

STATEMENT OF ALAN H. COHEN, DIRECTOR, LOW-INCOME TAXPAYER CLINIC, ITHACA COLLEGE, ITHACA, NEW YORK

Mr. COHEN. Mr. Chairman and distinguished members of the Subcommittee, I am pleased to appear before you today to address the Subcommittee on matters relating to funding and performance of low-income taxpayer clinics.

Ithaca College is a fully accredited, independent institution of higher education offering bachelor's and master's degrees to approximately 6,000 students. Tompkins County, New York, has 98,000 residents. Nineteen percent of them are below the poverty level, and 11 percent represent English as a second language (ESL) communities.

This tax season, senior accounting majors had training in 6 credit hours of taxes and also passed the Volunteer Income Tax Assistance program (VITA) volunteer exam certification. Sixty-five ESL taxpayers, approximately 40 families, tax preparation was conducted at the ESL community sites because it is easier for ESL taxpayers to be more familiar with locations and translators. Returns were computerized and e-filed; and, in addition, 70 international students were assisted at more workshops in the preparation of 1040 NRs.

To insure quality control in the preparation of ESL tax returns, the clinic participated in a peer review of client tax work papers. The accounting firm of Dannible & McKee CPAs of Syracuse, New York, conducted an on-site review of the clinic's 2000 tax practice.

At a meeting at the IRS Buffalo District in September, the IRS administrators confirmed that approximately only 2 percent of the taxpayers of Tompkins County were selected for a tax audit; and few, if any, were low-income taxpayers.

Given this information, advocacy services of an LITC in a less densely populated rural environment may have fewer clients to serve. We recognize that the most controversial issue at this time is LITC compliance and that our area has one of the largest percentage of individuals below the poverty level. If the Service decides to initiate compliance testing with respect to LITCs, a partnership with LITCs could prove most advantageous.

Tax advocacy is surely needed, but is this the only solution to the low-income taxpayer problem? I think not. There are approximately 12 to 15 million taxpayers who would qualify as low-income taxpayers. It makes perfect sense that the issue of clearly understanding technical tax complexities are similar for low-income taxpayers as well as ESL clients. The bigger and as yet unmet need of low-income taxpayers is tax preparation.

This past tax season the Service prepared approximately 500,000 tax returns, primarily for low-income taxpayers. The returns were prepared by revenue agents, supervisors and other selected IRS technicians who were reassigned to the taxpayer assistance centers across the Nation. What is the cost of this service? What is the lost opportunity cost to the IRS? Is there a better way?

I and many others believe pilot programs are needed immediately to more fully address the needs of low-income taxpayer preparation, to work more closely with the IRS to increase compliance and accuracy for earned income tax credits (EITC) and other low-income taxpayer issues and, most importantly, to assist the IRS in shifting the unrealistic burden that it has undertaken as the tax preparer for one-half million taxpayers.

Business schools and accounting programs could also provide an excellent venue for low-income taxpayer preparation. Funding guidelines could be similar to the LITC grant application process. Resources could be used for training, computers, procedures for electronic filing.

In summary, the LITC grant project for academic institutions is an excellent example of scholarship of engagement. The LITC connectiveness of government, taxpayers, private/non-profit institutions and the classroom all combine to provide a truly needed service. Everyone benefits: The eligible taxpayer receives a very needed free professional service; the academic institution fulfills its community responsibilities for outreach; the government achieves compliance and increased electronic filing; and the classroom environment flourishes. The LITC at Ithaca College ranks as one of the most rigorous and rewarding college experiences for the student volunteers.

Mr. Chairman, thank you for this opportunity to come before this Subcommittee and discuss the impact LITCs are having on taxpayers.

Chairman HOUGHTON. Thanks a lot, Mr. Cohen. I really appreciate you being here representing our part of the country. You are great. If you have to leave, do so or at any time because we are going to go through the panel and then have some questions.

So what I would like to do is to ask Mr. Rich -- Mr. Rich, would you like to testify? Why don't you just turn on the mike then.

Mr. RICH. Thank you. Good afternoon or at this point good evening, Mr. Chairman and members of the Oversight Subcommittee; and I would particularly like to thank Congressman Coyne for inviting me personally down to explain the University of Pittsburgh's program to you.

Basically, I would like to discuss three aspects of the program -- basically, our clients, our students and our cases -- and then, secondly, like to take a look at a short review of what has worked good for us and what hasn't and then a recommendation, third.

Specifically, the University of Pittsburgh School of Law has a tax advocacy LITC. We don't prepare tax returns. We help people with problems with the IRS. We answer all calls, and we refer taxpayers that have preparation problems to the VITA programs that exist in the area. And if a taxpayer calls with a frivolous claim, we send them on their way. We don't waste any time on frivolous claims.

Where our clinic is located, it is centrally located in Pittsburgh, at the University of Pittsburgh Law School next to the Law Library. The building is open during the day and the evenings so people that have to work don't have to miss work to meet with us.

It is a great opportunity because in the Pittsburgh area prior to this clinic there was no place low-income taxpayers could go for help except the IRS, and when they go to the IRS -- and they have expressed this and the clients I have talked to -- they don't get the same comfort level that they do coming to talk to us. Once they realize that they are talking to somebody on a confidential basis and they can tell us the whole story, whereas if they are talking to the IRS they have to watch what they say, I think that also speeds up their process. Because once they know that we are available, they are willing -- the last thing they want to do is have a tax problem hanging over their head. But the second-to-last thing they want to do before that is to call themselves. So if they understand, hey, we can talk to these people, we can sign a power of attorney, and they can take care of the problem with us, I mean, we have to pay whatever we owe or do whatever we have to do, but it really helps resolve problems a lot quicker.

To respond to what Nina said, when somebody gets a notice in the mail, they get one notice, they don't do anything. They get two notices, it starts snowballing on them. Then, before you know it, they are in collections when they might have had just to send a birth certificate in to prove that their child they claimed the earned income credit for was actually their child.

Because one thing that I have found is that you don't run into traditional family units. You might have people with last names being the mother of somebody, you know, and it is just not as easy as it used to be to prove these things.

So having qualified students -- and our students, second- and third-year students, a lot of them have a surprising amount of general and public accounting experience; and they are almost all law clerks. So they are very well represented, and the IRS has been very cooperative in working with the students. Also, the IRS in our area has been very cooperative in helping get our names out.

The Collections Division is an area -- and that is the one recommendation I have to make -- is the one area where we could help a little more with getting notices -- because lawyers aren't allowed to target people, but in this instance where you have a notice going to taxpayer, it is easy to -- well, I shouldn't say it is easy because of the logistics of which taxpayers get the notice and not -- but to stick a little piece of paper in the notice that says, here, if you are within 250 percent of the poverty level you can call these people and get help. I think that really speeds up the process, and it might cut into the dead weight that Nina's coming across.

In particular, we have had all kinds of clients. Our clients are singles, single and married moms and dads, abused spouses, disabled taxpayers and retired taxpayers. The types of situations and the cases we have -- we have had two Tax Court cases. I have only been there a year, but we have had two Tax Court cases, both of which we have prevailed on, and stipulated cases where there aren't any trials. We just go in and prove -- we sit down, do what we have to prove, and the case is over. We are not wasting any Tax Court time.

We have also had a lot of issues with dependency and claiming exemptions, filing status, proving head of household, things like that, and offers in compromise, installment agreements, formally and informal, cases where we have the IRS, the Service Center will issue out a 1099 matching audit.

Well, this one poor lady, a relative did her tax return for her. She got a big tax bill. Well, what we did -- she did miss some income, but what she also missed was a bunch of expenses and deductions. We took care of that. She still owes a little money, but it is a whole lot less. That was for 1999, and for 2000 we are just going to do the same thing. So we are really killing two birds with one stone there. You know, we have one taxpayer and we have cleaned up 2 years in matter of a couple of months.

So I think this is one area I know in the Pittsburgh area where there were no legal clinics before. If you had a family problem, you could go to one place, but you couldn't go to anyplace with a tax problem.

The one area where I really think the IRS and where I would recommend we help is the stuffer notices. I know in Pittsburgh, the appeals office, the taxpayer service office, the walk-in office, they have been very helpful. They tell people, hey, if you have a problem, call these people and PITT will help you. But the actual notices, the collection notices that go out of Philadelphia and the automated collection system, if you could stick notices in them, I think you could really help a lot of taxpayers and cut down a lot on -- you could target who we need to help.

I mean, targeting people when you are a lawyer isn't good, but in this situation, I mean, that is our audience. Taxpayers are who we are supposed to help. They get a notice, and it would be easy, I would think, to include our blue stuffer notices with all of the other notices that go out of Philadelphia.

From the students' perspective, I think it really helps our students in the skill of learning how to meet a client, to gain their confidence and to interview a client and to gather the information necessary to prove your case to the IRS, especially in our situations because sometimes the evidence isn't as clear. There isn't a checkbook or leases, things that normal people have.

In closing, I really thank the fact that you are giving low-income taxpayers an opportunity for confidential independent help other than the IRS. When they walk into our office they are nowhere near the Federal building, and it gives them a comfort level and gives them the ability to promptly respond without having a sword or something hanging over their head.

Thank you very much for giving me the time this afternoon. My testimony goes into a lot more detail, but I just wanted to really concentrate on the fact that, up until you guys and ladies have started this program, there was no other program like this, and I want to thank Nina for doing so.

STATEMENT OF LESLIE BOOK, ASSISTANT PROFESSOR OF LAW, AND DIRECTOR, FEDERAL TAX CLINIC, VILLANOVA UNIVERSITY SCHOOL OF LAW, VILLANOVA, PENNSYLVANIA

Mr. BOOK. Good evening, Mr. Chairman and distinguished members of the Subcommittee. Thanks very much for your continued interest in low-income taxpayer clinics.

In light of the time of day and prior testimony and written testimony, I am going to summarize a few important points and highlight some areas that I think are worth highlighting.

Villanova University where I am affiliated is one of the few organizations that, prior to the Restructuring Act, hosted tax clinics. Since the 1998 Restructuring Act, the growth of tax clinics has been remarkable, and I am pleased to be able to be part of this growing and exciting community, and I would like to talk about some of the issues and challenges raised by the growth and the operations of the program.

Today, LITCs across the country represent thousands of taxpayers involving all stages of the tax controversy process and all sorts of issues, including varied issues like earned income tax credit, innocent spouse, injured spouse, offers in compromise, educational expense deductions, substantiation of business expenses and others. Moreover, LITCs are helping nonfilers reenter the tax system.

I wanted to highlight just a few attributes of our client base and talk about how I think LITCs can really play an important role in the system.

Many of the clients of LITCs such as Villanova's are least able to help themselves. A number of our clients, like other clients at LITCs, are relative newcomers to the country who may speak English as a second language. These ESL taxpayers, while diverse in their backgrounds, often share significant language barriers and fear of government and have little understanding of our Nation's voluntary system of tax self-assessment. Many other of our clients, like those at other LITCs, are recently off the welfare rolls in welfare to work programs. Others are recently separated or divorced. A significant number of our clients lack access to computers and to the Internet that many of us now take for granted in our lives and have limited literacy skills and educational backgrounds.

What that means for the most part is a number of these taxpayers are ill-equipped to handle and work through the oftentimes confusing and lengthy controversy process. The procedural and substantive provisions of the Internal Revenue Code, as we all know, are quite complex, and LITCs play an very important role in ensuring that those taxpayers have a voice in the system.

What I would like to do is really acknowledge the strong administration of the program that the IRS has been able to provide since day one. I think it has been a challenge to get up and running a grant administration program as well as an organization that is reviewing the performance and operation of the LITCs. What has happened is because of the great success of the LITCs and the funding provisions there has been enormous growth in the program.

In the 3 years in which LITC funding has been available, the growth has been substantial. In the first year, the IRS received 43 grant applications and approved 34 grants totaling approximately $1.46 million. In the second, year the IRS received 88 grant applications and approved 81 grants totaling approximately $5 million. Last year, the IRS received 141 grant applications and approved 102 applications covering a full $6 million authorized under section 7526.

Largely because of the success and remarkable growth of the LITC program the IRS has been placed in a very difficult situation that I believe will only get worse. According to the IRS, of the 102 organizations which received funding for 2001, almost 50 percent of those organizations would have received additional funding if the $6 million authorization cap in section 7526(c)(1) were higher and more appropriated funds were made available. Moreover, according to the IRS in 2001 the $6 million funding limitation prevented eight otherwise qualifying organizations from receiving any funding at all.

The effect of this is that many otherwise needy taxpayers in parts of the country are not able to receive representation. Many organizations that receive only partial funding are not able to serve fully their communities.

There are 12 States without any LITC at all; and many large cities, especially those with significant ESL communities and high populations of those recently moved from the welfare rolls, could support more LITCs. If things merely stayed the same, the IRS would continue to be placed in the unenviable position of rejecting in whole or in part worthy organizations' grant applications and denying the possibility of extending the benefits of LITC activities to deserving communities.

Accordingly, in my written testimony I recommended that Congress consider raising the authorization limitation from $6 million to $15 million and likewise consider specifically appropriating funds so the IRS does not have to make difficult decisions in terms of allocating resources to LITCs apart from other areas in which the IRS is intending to modernize.

In sum, I believe the LITC program has been an unqualified success, and I look forward to continuing to work with the IRS and with Congress in ensuring its future success.

Chairman HOUGHTON. Well, thank you very much. I am going to do this in the order of distance you have to travel. So, Mr. Heavner, since you probably have to get back to Richmond, why don't you go next and then we will just go to the others.

STATEMENT OF TIMOTHY B. HEAVNER, EXECUTIVE DIRECTOR, COMMUNITY TAX LAW PROJECT, RICHMOND, VIRGINIA

Mr. HEAVNER. Thank you, Mr. Chairman and distinguished members of the Committee. Thank you for the opportunity to appear and testify before you today regarding the low-income taxpayer clinics.

I appear before you attempting to fill some very large shoes of my predecessor Nina Olson as I am the Director of the Community Tax Law Project, and I am also here today as the current director of the Low-Income Taxpayer Clinic National Resource Center.

I have submitted a more comprehensive statement, but I would like to highlight just a few points concerning the benefits that to low-income taxpayers clinics provide, and I will call them LITCs for the sake of this discussion.

Many of the benefits LITCs provide are direct and obvious. They provide direct representation to low-income individuals regarding their tax liabilities and obligations to which they would not otherwise have access. They also conduct outreach to these same taxpayers and those who work within that community to educate and inform these taxpayers of their tax obligations.

The efforts of the LITCs have been an unmitigated success. Since the adoption of IRC §7526 as part of the IRS Restructuring and Reform Act which provided funding for the LITCs, the clinics have been able to assist thousands of low-income taxpayers through direct representation and outreach. These are the direct and tangible benefits that flow from the outstanding work being done by these clinics.

I wanted to share with you some less obvious benefits that are derived from the work of the clinics based on my personal experience. Prior to taking my current position as director of CTLP, I worked as an attorney in a field office for the Richmond, Virginia, Office of Chief Counsel for the IRS. In that role, I was responsible for numerous cases which involved low-income taxpayers who often were attempting to represent themselves.

I experienced firsthand the frustration, fear and anxiety of these taxpayers based on their participation in this process. I also quickly discovered how ill-equipped these taxpayers were to handle these matters. Normally, I was able, with significant effort and expenditure of time, to help taxpayers understand at least the basic nature of their claim and the process in which they were involved. They were often unable to gather information necessary to support their position and often did not trust what I was telling them was in their best interest.

There were many instances in which, although I did not doubt the veracity of the taxpayer, the complete inability to support their position with anything other than their oral testimony was insufficient to satisfactorily resolve their issue and may have not gotten to the right answer. This often led to the need to go before the Tax Court for resolution of an issue that should have been able to be resolved by the parties.

When working with the same types of issues with other low-income taxpayers that were represented by an LITC, there was a much different result. By working with LITC attorney representing the client, I was able in a much more efficient manner to narrow the real issues in controversy; and then that attorney was able to assist the client to fully develop their case, especially on factual issues, and present it in a well-reasoned response to the issues raised by the IRS. Most of the time the attorneys, the two attorneys, myself included, were able to resolve the matter without the need for litigation. If litigation was required, it was based on a well-developed case, both legally and factually.

The efficiencies created by the work of the LITCs were not limited to this prelitigation stage. I attended several Tax Court calendars where LITCs were present and ready to discuss potential representation with pro se taxpayers. Some of these taxpayers may never have had any contact previously with the Service other than receiving the letter or with counsel in preparation of their case.

All of those involved in the process were beneficiaries of the presence of the LITC representatives. The Tax Court appreciated the ability of taxpayers to confer with the representatives if they chose to do so. They often led to the ability to resolve the matter, again without the need of court intervention.

In cases that the LITC were involved in, had the LITC not been involved the Tax Court would have probably had to dismiss the case for either failure to prosecute or would have had terribly insufficient information on which to base its decision. The representative of chief counsel also very much appreciated the LITC presence because many times the LITC representative was able to confirm to the taxpayer, from an independent source, that what the counsel attorney had been telling them was the correct result and was in their best interest, and again was able to avoid litigation.

Finally, the biggest beneficiaries obviously were the taxpayers served by the LITC. The ability to consult with an independent counsel provided an incredible amount of legitimacy and confidence to the process that would have otherwise been lacking. Too often I heard pro se taxpayers that didn't have the benefit of an LITC representative say that they didn't really get their day in court or that "I was railroaded."

Avoiding this feeling by the taxpayer and making sure that they feel they are fairly treated is vitally important in our system of tax administration.

I also want to highlight the efficiency of the LITCs as a delivery system for these much-needed services. The key to the success of the LITC is the leverage they provide in maximizing the benefit of the grants given. LITCs are able to use volunteer services. In the academic clinics they are able to use the student representatives; and for the nonacademic, not-for-profit organizations they use a combination of in-house counsel and volunteers attorneys and accountants to provide pro bono representation.

The use of this donated time and effort allows LITCs to provide services worth significantly more than the actual dollars received in grants. Based on the requirements under IRC §7526, these funds are awarded on a matching basis and this further leverages the use of the funds.

Before section 7526 was enacted, CTLP had significant difficulty in obtaining grant funds. Although we received compliments on what we were trying to do, our activities wouldn't normally fit within the mission of potential grantors. Now that we have funds from §7526 we have been able to exceed our matching grant and actually receive funds in excess of the matching as we seek grants.

The limit on available funds under §7526 has already caused the IRS to limit the amount of awards given to some 50 percent of the authorized grantees and caused eight otherwise eligible groups to fail to receive funds. This lack of funds will also inhibit the expansion of the programs into States and cities that do not have the services available. To ensure that adequate resources are available to allow for necessary growth and expansion into these areas, the authorization limit under 7526 should be increased to $15 million, and this number should be indexed to account for inflation. This increased authorization would be sufficient to meet these goals.

I thank you for the opportunity to speak with you concerning Low-Income Taxpayer Clinics, and I also thank you and look forward to your continued support of the clinics.

STATEMENT OF JANET SPRAGENS, PROFESSOR OF LAW, AND DIRECTOR, FEDERAL TAX CLINIC, WASHINGTON COLLEGE OF LAW, AMERICAN UNIVERSITY

Mr. Chairman, I am the Director of the American University Tax Clinic in Washington, D.C. ours is one of the older clinics in the country. We started our program in 1990. We started it as an educational program for law students to teach them about representing taxpayers and practical applications, and at the time we had no idea how great the demand would be for our services. We were literally overrun by clients who came to us and sought out help from us.

At the time, there were 14 tax clinics in the country; and if a person had a problem involving a landlord-tenant issue, a battered spouse issue, a criminal defense issue that they needed help with, there were legal services organizations all over the country who could help them. If they had a tax issue, there was no one to help them. We were one, as I said, of only 14 all over the country. Since 1998, there are now 102 tax clinics helping people all over the country, and that is just a huge compliment to this Committee and this Congress in creating this extremely valuable program.

Other members of the Committee have talked about what the clinics do and the importance of the clinics and the successes that they have had and how valuable they are, and I am not going to repeat that. I would only say that this Congress has enacted three taxpayer bill of rights provisions over the years, and I can tell you that the most important taxpayer right that was created in any of those provisions was to give people access to lawyers, to access those rights. Because unless people know about them and unless people can access those rights, those taxpayer rights lose a lot of value.

The only problem today that exists in this extremely successful program is that it is running out of money; and as other members of the panel have said, the statutory cap, which is now $6 million in section 7526, badly needs to be adjusted upwards; and we are suggesting a cap of $15 million. As I said, there were 14 clinics when we started, and a $6 million cap seemed enough because the statutory limit for any one clinic was $100,000. If every clinic got a full grant, that was a million four, which didn't come close to the $6 million. No one understood how quickly these clinics would grow and develop, and we are now bumping up against the cap.

As Mr. Pomeroy said, there are still several States that do not have clinics. There is not an overabundance of clinics. One hundred and two clinics is two clinics per State. We could use one in every city in the country, and in some of the major cities we could use more per city. So we can certainly use more clinics, and we need more money.

Clinic education for an academic institution is extremely expensive. At my law school, I can stand up in front of a hundred students and generate tuition dollars from a hundred students, and all I need is a classroom and a blackboard. If I am teaching in a clinic, first of all, I can only teach about eight or nine students at a time. Because if you have each student having three or four cases, supervising all those cases by people who need a lot of supervision, who are novices at that, limits the number of students that you can help in any one time. In addition to that, you need computers, fax machines, copiers, stationery, malpractice insurance. You need everything that you need to run a law firm.

It is much more expensive for a law school to offer that kind of education, and you also need a huge amount of space within the law school. So law schools are not going to offer this without some kind of supplemental funding to help them defray these costs.

Mr. GOLD. Thank you, Mr. Chairman, and thank you for staying with us at this late hour. We appreciate the opportunity to offer our views today on the functioning and funding of the Low-Income Taxpayer Clinic program.

My perspective about providing pro bono services to low-income individuals and families began more than 30 years ago when I started Community Tax Aid in New York City. So we predate the LITC program by a few decades. This nonproft group is the oldest volunteer group of accountants and provides low-income taxpayers with a complete tax service including representation at the IRS State tax agencies, and the Tax Court. There is no paid staff and the annual budget is less than $4,000. This is my background in serving low-income taxpayers.

When I moved to the District in the early 1980s, we began a similar group, also named Community Tax Aid. This past year, 250 volunteers helped nearly 1,400 clients with a wide variety of tax problems ranging from return preparation to offers in compromise and, as I said earlier, representation. We have our own training program and stress quality control.

Our talented volunteers make this possible and deserve all the credit. They include CPAs and a growing number of lawyers, economists and others. We regularly offer our services in Spanish, Mandarin, Cantonese, Amharic -- which is Ethiopian -- Arabic and Korean, and next year we are hoping to add another couple of languages. Either our volunteers speak these languages or we recruit interpreters.

We have developed mutually beneficial relationships with community groups to help our outreach into the community.

The LITC program is well conceived, but it is a work in progress and should be revisited regularly so revisions can be made. The people we serve deserve no less.

The greatest need, already been mentioned by several of my colleagues, is to at least double or even triple the current budget. And please keep in mind that most low-income taxpayers have not done anything to complicate their tax lives. Yet our tax laws, forms and instructions get more and more complex, while nearly half of our adult population is either illiterate or functionally illiterate -- the conclusion of the National Institute of Literacy, an independent Federal organization. This comes to about 90 million people in this country, a population that includes far more than the ESL population. Funds are needed to make sure that we can provide more help with return preparation to low-income native English speakers.

Amazingly, Congress expects the working poor to understand and comply with the baffling array of tax laws when they cannot -- and most cannot -- afford the professional tax help they need. Nor can the IRS VITA program offer the needed help. The taxpayers often run into problems and are subject to severe penalties. Three are at the top of my list, and I will refer to the details in my statement in the written testimony.

Community Tax Aid, as an independent not-for-profit, can afford to spend as much time with out clients as they need. For example, we work out an extended payment schedule for an installment agreement so they can get away from years of recurring installment payments. This will relieve them from paying added unnecessary expenses and save a lot of tax administration dollars.

Some in the LITC program would have separate funding vehicles for groups that deal only with controversies and another for those that prepare tax returns or do ESL work. I suggest that we are speaking about one very large community and that all should be kept, at least for the time, under a single funding tent. All types of programs should work together towards a common goal.

Effective outreach brings in people so they have access to quality tax return preparation. What follows is that this should reduce or prevent the need for costlier controversy work and save considerable costs to the IRS and Tax Court.

At CTA, our eligibility limits are far lower than LITC caps, and we generally do not lack for clients. We decided long ago that people with the lowest incomes get the highest priority and have kept to this principle even if a client with a higher income and a more interesting issue arrives. Our primary goal is to serve low-income clients, not give our volunteers a wider range of tax issues to develop their skills.

Again, I urge that the funding for LITC programs be expanded significantly to meet the needs. If our nation can spend $117 million to administer the tax rebate program as well as the $500 million that is being talked about over 5 years to speed up the processing of immigration applications, growing the original $6 million annual grant for LITCs by a multiple of two or three times should be elementary. We need to be substantially more than a band-aid solution.

I close with an invitation to Members of Congress and staff to visit CTA in the metro D.C. area next tax season and see the extent of problems that low-income taxpayers face.

Mr. Rich, your testimony includes a recommendation that the IRS collection notices sent to low-income taxpayers include a stuffer about the Clinic's services. How does the appeal stuffer process work and would it work the same for collection notices?

Mr. RICH. All the stuffer notices -- it is a single piece of paper that says that if you are within 250 percent of the poverty level you can contact a low-income tax clinic, and it gives the University of Pittsburgh and I also think in our area it also gives the University of Duquesne number.

By putting those in the collection notices -- right now, the Tax Court issues -- any Tax Court case calendared in Pittsburgh, a small case, they get a stuffer notice. Over in the appeals division that handles Tax Court cases with the IRS and also handles appeals of exams from taxpayers, they have our stuffer notices in the front window there; and the receptionist there always informs people of our existence. And also down in the first floor where walk-ins come in and ask questions, pick up forms, we have our stuffer notice there.

But where we don't have our stuffer notices and the people that aren't getting them are the people that are getting the notices in the mail. Those are the notices that kind of just sit, and a lot of times we get envelopes that are never opened. Because people are just afraid when they get a notice from the IRS and they know they are not entitled to a refund, it is not usually good news.

Once they get us involved -- and, believe me, as soon as they find out all they have to do is sign a power of attorney and we will take care of them, all they have to do is just give us the information, it is a weight off of their shoulders. Right away they will jump over backwards trying to get the information to you and trying to get this behind them.

So from that perspective, the stuffer notice, to me it is a direct contact to the person that is going to have the problem; and it is something that we are not wasting a lot of money marketing and things like that. The tough part is -- and from the IRS's perspective, Nina might know better than myself -- but I know a lot of people in collections, from the logistics, just to put another piece of paper in a letter is a lot when you got a whole lot of letters to do.

You don't want to give everybody a notice, yet at the same time there has to be some way to distinguish between an eligible taxpayer or somebody in that 250 percent of the poverty level area and somebody that wouldn't be entitled to it. But if could you overcome that burden, you could inform taxpayers that have a real need, they open their first notice -- because normally a lot of times they might open the first notice because they don't know what it looks like, but, believe me, the second notice they know what it looks like. They look at that and say, oh, I can call these people for help. You know, it just gets them into the system.

A couple of people we have had are non-filers where they, you know, they got a notice and they are looking for a tax return and they realize they can come to us. Now what we do is we send them to the VITA program to get the returns done but then we coordinate with the IRS to make sure they are filed and all these sort of things.

So it is actually also bringing people back into the system that have been out. Just having a buffer of somebody that they can come to and to inform them of that, I think is one of the biggest hurdles; and by using stuffer notices we can directly target the people that need our help.

Mr. RICH. Yes, the appeals people are very helpful and the district council people have also been very helpful as well as the taxpayer service people. It is just collections, and I know in our area -- 98 percent of the people I have ever met at the IRS are nice enough to be your mom and dad. I know in our area collections has been tough over the years.

For example, last year, there were seven seizures. I mean, seizures are very low, but in Monroeville, for Congressman Coyne, one revenue officer had three out of the seven seizures going. So I mean, we have a tough area to deal with; and by helping or informing those collection taxpayers that we are available, I think we could help a lot of people directly and also help the IRS. Because the quicker they can dispense of cases, we are helping them with their backlog.

I serve on a team at the IRS that is addressing these types of issues, and one of the things we have been wrestling with about a stuffer is can we do it, first, on a national basis so we are not having to sort by zip codes and just putting one special one for the Pennsylvania clinics. Can we put one in that would list all of the clinics that are eligible just on the back of the stuffer?

We are trying to see whether or not stuffers are the most effective medium to communicate with taxpayers. We are wondering whether on a notice, in order to save costs, can we put just a little box on the front that is highlighted that says, call this number; and you will get a recording, you can key in your zip code and we can pull up, you know, the clinic in the area. It would be an 800 number just dedicated to that.

We are also looking at and we are asking for a counsel opinion about -- just a sort of security that our collection folks or our customer service reps -- when a taxpayer calls up and they are hearing that it is someone who is saying I don't know what this is all about, you know, I don't have any money, that we can unsolicited say there may be a clinic in your area. And then we have on their screen the employee working there would be able to pull down by zip code the clinics that are available and we can give then the contact number.

So we are looking at some ways that might be more effective to communicate this information in addition to the walk-in and the brochures that we are putting out.

The only other thing I would say is that down the road our printing capacities are being consolidated and that will allow us to do many more of the sorts at a much more efficient manner than it would be now with the sort of archaic printing technology that we have. We do have a time line for that. It is not as fast as maybe some of the people would hope. We are looking for some intermediate ways to approach that.

Chairman HOUGHTON. Now we have got another time problem. Mr. Portman has got to leave at 7:15. So, Mr. Portman, would you like to inquire?

Mr. PORTMAN. Thank you, Mr. Chairman. I will probably see some of you at the airport. We are trying to catch flights.

First of all, I appreciate your testimony and what you do every day. And we have one of the pioneers in Ms. Olson. I am glad you stayed around in this area. This, as you know, came up during the Commission quite a bit -- in fact, Ms. Olson, help us -- and Ms. Spragens testified -- I recall, Janet, you were involved in the Commission deliberations on this. And probably some of you did as well. I apologize if I don't remember your testimony. But 7526 -- and it is also something that this panel has taken the lead on, as you know. Without Mr. Houghton, Mrs. Johnson, Mr. Coyne and now our new member of the Ways and Means Committee from North Dakota or the Dakota --

Mr. PORTMAN. There would be no program. We not only started it, but every year -- but we are the ones that write the letters to the appropriators saying give us the money. And this year, as you know, the Subcommittee has given another $6 million, it was reported out yesterday. So I think we are on our way to getting that again. But it is very tight, as you all know who work with the IRS.

Ms. Olson, the IRS budget is going to be very tough this year. We again got a good mark up out of the Subcommittee, but we have to do it every year, and this group pushes that.

But I have to make the point, that when we put this together it was about controversies with the IRS. It was not about tax preparation. You remember, Ms. Spragens, when we came up with this idea it was a new idea building on an old system that has been out there for years. Those of you -- I don't know, Mr. Gold, you said how many years you have been at it in New York and then here. But this is decades old.

But it was to focus not on the broader issue of how to prepare your taxes but when people with low income got involved with the controversy with the IRS where they could go. And some of the testimony, Mr. Book and others, have said, several of you have said we should perhaps set up a separate program for tax preparation or put more money in here for tax preparation. That is something we need to think about and talk about as a Subcommittee. Because that may be a different mission than what we at least had anticipated.

I look at the language -- and Mr. Coyne was on the Commission with me. It says to represent low-income taxpayers in controversy with the IRS. And then it says, or to operate programs to inform individuals for whom English is a second language about their rights and responsibilities.

It is under the ESL part of the statute that the IRS has expanded into tax preparation which isn't really -- I don't think was the intent of the Congress. That is only by way of saying that we would be supportive I think of expansion of the appropriation. It is not going to happen this year, in my view, but maybe next year we can provide some data about the need that would help us in that regard. And the more applications the better, more stuffers the better, which leads to more interest in places like Cincinnati, Ohio, will get some of these clinics applying so we can get them more and more involved.

But the point is, I guess, that if you all think we are not focused enough on controversy and we are getting into these other areas and it should be a new program, we need to hear from you because it may be better to start a new program rather than try to expand on this one.

When you looked at the funding over the years, we started off with $1.5 million, as I recall, try to find it here, then it went to $5 million, then to $6 million last year. We funded 72 percent, those who applied, which is a pretty high percentage. I don't know what you got in terms of your criteria here. I assume there were a lot of good quality candidates who were turned down, but 72 percent is pretty high. 59,000 was the average.

One way to do this, of course, is to reduce the amount you give so you can cover more people. Another is to increase the match. It is now 50/50. Maybe we should be trying a higher match for some. Other ways, to say after 3 years maybe you should graduate, sort of get on your feet and to find more private sources or other public sources.

Let's assume for the next year we are going to live within the $6 million budget. Mr. Rich.

Mr. RICH. I know, Congressman Portman, in Pittsburgh getting private funds for this sort of thing would be next to impossible. We have just been through two stadium deals in Pittsburgh, and private funds and that sort of thing are very, very tight. With the city budget and the county in the Pittsburgh area, I think this is the only place that we can look. Now I am sure the university has other places to look, but I know personally that would be very, very tough to all of a sudden cut somebody off in the third year.

Ms. SPRAGENS. I can only speak to academic institutions because that is my frame of reference, but, as I indicated in my testimony, I think that it is very expensive to provide these kinds of programs. There are still many, many schools who have not opted into this program because of the expense. So I think that this idea of seed money to get things started in hopes that the program will be able to be self-supporting is not realistic.

I think you are going to see a drop-off in clinics if they don't -- at least academic clinics, if they don't --

Mr. PORTMAN. I assume we are coming up on the third year for some of the original applicants so we will be going through that reevaluation process. Are you concerned about that, Ms. Spragens, that some of these entities might not get their funding?

Ms. SPRAGENS. Actually, my program was awarded a potential 3-year grant last year. So I am not immediately concerned about this.

But let me just say that this program -- and I don't think I have to convince members of the Subcommittee how important this program is, but I think that it is more than just the settlement and resolution of individual cases. I think we are talking about building confidence in the system. I think we are talking about bringing low-income issues into more focus, more visibility before the IRS, before the media, into public debate, democratizing the case law by bringing these issues up.

It seems to me this is a program that ought to be funded to the extent people are willing to leverage private resources and participate in it. I think these are dollars so well spent that I am reluctant to respond directly to your question about how we can get people out of this program by increasing a match or --

Mr. PORTMAN. I am talking about getting more programs involved. The point would be to get more bang for the buck by not having -- let's say 70 some percent were able to get funded this year. Let's say next year, next fiscal year we can only get $6 million again, which I think is very likely, and we have more applicants because there are more stuffers and more interest and more people applying. How would you spread the wealth? Would you have smaller grants? Would you have just a lower percentage of grants given out? Would you require a higher match? Would you graduate some folks off who could do it on their own?

I mean, the easy answer is, you know, $15 million; and I understand that. I think this Subcommittee would be your first place to support that, but that ain't going to happen in my view this year given the budget. Maybe you will have better luck in the Senate.

But that is what I am just wondering, if there is ways to restructure the program to respond to the need.

I don't need to take up any more of your time. I also have to catch my flight. But, again, thank you all very much for what you do every day.

Mr. RICH. Congressman Portman, one thing, if you did have to cut programs I would recommend reducing the grants versus cutting sites. Because these things -- cases are started in the pipeline, and especially with offers in compromise and things it takes a long time to deal with the IRS and to resolve a controversy. So to stop something midstream with something that has really caught on and really helps people would be I think detrimental. I think the programs might be able to pick themselves up by the bootstraps if you cut their allowance versus cutting it off. You know, just reduce it. So if you are thinking of something like that, I would tend towards reducing it.

Mr. PORTMAN. The funding would stay level but there would be a lot more interest and more applicants as there have been every year.

Mr. RICH. These programs like North Dakota -- I am sure there are a lot of people out in North Dakota that could really use this -- farmers, people that are self-employed, that don't have any place to go that get in trouble with estimated tax payments. You don't pay this year and it just snowballs up on you.

I want you to know, panel, that this is an absolute first in my legislative experience. This is a Subcommittee receiving testimony after 7:00 at night after the last vote of the week. Only the compelling power of the Chairman and the dazzling presentations of the panel would have created this kind of critical mass of legislative participation; and it really has been very, very interesting.

Ms. Spragens, staff has been telling me of your involvement prior to my time on the Committee in terms of taking this from an AU program and advocating for some Federal support to get it more broadly extended. Has it worked as you had hoped?

Ms. SPRAGENS. Mr. Pomeroy, I think it is a dazzling success. I couldn't be prouder of the number of clinics that -- I mean, I take no personal -- I didn't do it.

Ms. SPRAGENS. The answer is, yes, I am very happy with the program. As I said, it is now just a victim of its own success. It has gotten so successful it just needs more money to keep going.

Ms. SPRAGENS. The academic clinics are supported by the law school, and the law school does not draw a distinction between offering a clinic course and offering contracts or torts or securities regulation or any other course. However, it is very expensive education because of the low faculty-student ratio and all the collateral costs. We don't have --

Mr. POMEROY. Thinking back to my law school days there wasn't a malpractice premium high enough to cover my exposure if I was doing tax returns for other people or helping people resolve conflicts, so I do understand that one. And then the law school's participation is in kind toward the Federal grant dollar then?

Ms. SPRAGENS. We overmatch. We contribute so much money. I am very proud of my school, that we have made such a commitment to this program. Between salaries and secretarial help and equipment, I mean we just overmatch. So we have never had a problem with the match. I think nonprofit organizations which are dependent on raising private funds are much more at risk for developing a match.

Mr. BOOK. My experience at Villanova is similar. Our institution is well above the match amount in light of salary and equipment for the clinic computers and space and secretarial assistance.

Ms. OLSON. Congressman Pomeroy, when I ran the Community Tax Law Project, the first year that I ran it I sent out 30 grant applications to both State, local and national foundations; and I got 30 very polite "your idea is wonderful but, you know, we don't have the funds for it." Over the years we slowly built up something from community foundations and from the bar association and the bar foundation.

But I also went up to the general assembly of Virginia for 3 years in a row. The first 2 years we were turned down in our request roundly, and it wasn't until the third year when I was actually able to wave a piece of paper in front of them. You see this? For every dollar you give us, we bring in another dollar. We got this IRS match. Then we got the appropriation. So now the Commonwealth of Virginia funds the Community Tax Law Project to the tune of $50,000 a year.

Mr. POMEROY. As I pitch this back to North Dakota to the dean of the law school, what can you tell me about what the students have gained from their participation in the program?

Mr. BOOK. From a student's perspective it is a great educational experience. They are getting a lot of practical training in skills like interviewing, counseling, negotiating. They are getting an opportunity to work with a difficult substantive area in the law. They are getting the opportunity to get client contact at an early stage in their young careers.

They are also getting a very important sense of the importance of pro bono work and public interest work that hopefully can carry over in their professions. Many of my students will be going on to doing work at corporate law firms or nonpublic interest work, but a lot of them are still involved and interested in the sorts of work that is done by our clinic and other organizations. So skills and public interest exposure is very important.

Ms. SPRAGENS. The kinds of experiences they get are turning out better lawyers. They are lawyers who have had client contact. And you would be surprised what students don't know. I mean, the smartest students who are going on to --

One student -- whenever a student sends out a letter, I have to approve it even if it is a form letter. And a student brought in a letter, and it was a very good letter. I said fine, send it out. And I don't even know why I said this, but I said be sure to put a copy in the file, and the student said good idea. You know, I mean it is just silly little things that people don't know about how to keep a file, how to write a memo to the file, what to wear to an interview. I mean, they are all the things that Les said about learning about how to interview, how to negotiate a settlement agreement.

But just basic lawyering skills are developed there, the clinical model, in ways that they just aren't throughout the law school curriculum. So it is very good education for the students; and, of course, the by-product is that it serves a need in the community that is in large part unmet and, as I said, has these ripple effects as well. It is a win-win program.

I have just got one question here because it is late. What do you think about all of this, Ms. Olson?

Ms. OLSON. I am a little biased. I think, as Janet does that -- Ms. Spragens does, that the low-income taxpayer clinics are extraordinarily important. And the most important part of it is the trust that taxpayers get back into the system, you know, that they are getting a fair shake. It keeps people in the system.

I wish that we had enough money to fund all of the ones that are applying. I know that the Service's highest priority in the next go-around is going to be with, you know, with the applicants coming in, if there is any money, if some groups are going out maybe because they are not performing in the way we need or something like that or if we make those hard choices about cutting the amount that we give -- and I don't have any inside track on that at this point -- that we are going to the areas that are geographically unrepresented, that we at least get them in every single State. That is a very important criteria for us at this point.

I have always had ambivalence about the funding of the tax preparation. As Congressman Portman pointed out, I don't think that was the original intent of the statute, to fund tax preparation. I do know that that was a call that chief counsel made within the IRS to interpret education and outreach as tax preparation. And I think that a good fit would be to relook at the statute and create a separate provision for tax preparation and that we think about that as a different issue. But I don't recommend defunding tax preparation now. I think that these programs that are being funded have a great degree of value.

Mr. GOLD. One of the ways that programs preparation, which is what we do primarily at Community Tax Aid, but we do representation as well and can work together with controversy clinics entirely -- with Ms. Spragens' clinic, their students are able -- as with any law school, are admitted to practice only before the IRS and Federal and the Tax Court. They cannot practice before State courts. They had an issue with an offer and compromise for both Federal and State, and we are working cooperatively where one of our lawyer volunteers is handling the State offer and compromise so that the taxpayer is indeed getting a full, complete service with friendly cooperation and it works out very, very neatly.

In terms of funding, by the way, our group has been very, very -- found it very, very difficult to get funds from the accounting world where, with a growing number of large law firms in the metro D.C. area, we are going to start seeking funds from some law firms. But it has been very, very difficult.

One other last thought and brief one that I would like to leave you with is, for the 90 million taxpayers who fit in the category of illiterate or functionally illiterate, for them taxes are a foreign language; and we have to make sure that they speak that language. A term like "head of household" or "dependent" has a highly technical meaning; and most of these people don't have the slightest clue and find it very, very difficult to understand how to comply. Even the booklet explaining the earned income credit runs -- I forget how many pages this year -- 54 pages, something like that. It is close to 60 pages. That is a heck of a read for somebody who doesn't read and comprehend and understand very quickly.

Ms. SPRAGENS. No, Mr. Chairman, I don't think so. Thank you for the opportunity to --

Chairman HOUGHTON. We thank you very much for being here and -- all of you -- really appreciate it, the late hour.

Mr. HEAVNER. Mr. Chairman, I would like to thank the Committee again for having us.

Just as a final thought that I didn't get to highlight, that as we increase -- I think it was Ms. Spragens who mentioned the taxpayer Bill of Rights, and we have been seeking to increase taxpayer rights with each consecutive step, and opportunities for due process for taxpayers. Without the likes of the clinics, all the clinics doing the different things they are doing, how can we really have access to due process without the continued efforts of the clinics?

So we thank you for your support and staying at this late hour and hanging with us to hear our comments.

[Whereupon, at 7:30 p.m., the hearing was adjourned.]
[Submissions for the record follow:]

COMMITTEE ON WAYS AND MEANS BILL THOMAS, California, Chairman
PHILIP M. CRANE, Illinois E. CLAY SHAW, Jr., Florida NANCY L. JOHNSON, Connecticut AMO HOUGHTON, New York WALLY HERGER, California JIM MCCRERY, Louisiana DAVE CAMP, Michigan JIM RAMSTAD, Minnesota JIM NUSSLE, Iowa SAM JOHNSON, Texas JENNIFER DUNN, Washington MAC COLLINS, Georgia ROB PORTMAN, Ohio PHIL ENGLISH, Pennsylvania WES WATKINS, Oklahoma J. D. HAYWORTH, Arizona JERRY WELLER, Illinois KENNY C. HULSHOF, Missouri SCOTT MCINNIS, Colorado RON LEWIS, Kentucky MARK FOLEY, Florida KEVIN BRADY, Texas PAUL RYAN, Wisconsin	CHARLES B. RANGEL, New York FORTNEY PETE STARK, California ROBERT T. MATSUI, California WILLIAM J. COYNE, Pennsylvania SANDER M. LEVIN, Michigan BENJAMIN L. CARDIN, Maryland JIM MCDERMOTT, Washington GERALD D. KLECZKA, Wisconsin JOHN LEWIS, Georgia RICHARD E. NEAL, Massachusetts MICHAEL R. MCNULTY, New York WILLIAM J. JEFFERSON, Louisiana JOHN S. TANNER, Tennessee XAVIER BECERRA, California KAREN L. THURMAN, Florida LLOYD DOGGETT, Texas EARL POMEROY, North Dakota
Allison Giles, Chief of Staff Janice Mays, Minority Chief Counsel SUBCOMMITTEE ON OVERSIGHT AMO HOUGHTON, New York, Chairman
ROB PORTMAN, Ohio JERRY WELLER, Illinois KENNY C. HULSHOF, Missouri SCOTT MCINNIS, Colorado MARK FOLEY, Florida SAM JOHNSON, Texas JENNIFER DUNN, Washington	WILLIAM J. COYNE, Pennsylvania MICHAEL R. MCNULTY, New York JOHN LEWIS, Georgia KAREN L. THURMAN, Florida EARL POMEROY, North Dakota
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records of the Committee on Ways and Means are also published in electronic form. The printed hearing record remains the official version. Because electronic submissions are used to prepare both printed and electronic versions of the hearing record, the process of converting between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process is further refined.